Such is the demand for higher-returning investment. In Alberta, some $12.8 billion was invested in the exempt market in 2011 alone.

It’s called the exempt market because companies issuing securities are exempt from the requirement to publish a detailed investment prospectus, producing a short-offering memorandum instead.

Exempt investment products are also not listed on major public markets, such as the Toronto Stock Exchange (TSX).

“The biggest difference between the conventional and exempt markets is liquidity — you’re generally in for a specific period of time with exempt investments,” says Haji.

This is typically one, three or five years. The locked-in nature of the investment constitutes part of the risk.

Risks, says Haji, are substantially offset by Pinnacle’s due diligence on behalf of its clients. Pinnacle selects only the best of the exempt market offerings for the consideration of its clients, says Haji.

“I also do my own due diligence before I recommend an investment to my clients,” he adds.

Pinnacle’s and his own due diligence tests include whether:

Investors receive first cash flow, before principles;

The management team holds a substantial investment;

Investments are fully backed by assets;

The record of the management team and its business plan is credible;

The offering is fair to investors; and,

Various other analyses.

“Exempt products aren’t listed on public exchanges and, as a result, they don’t fluctuate with the markets,” says Haji, meaning exempt securities tend to be insulated from the volatility of public markets and act as a counterbalance to them.

In Alberta, regulators prohibit investments in individual securities of more than $10,000 unless an investor qualifies as an eligible investor.

Investors can qualify as an eligible exempt-market investor if they have:

For those who meet regulators’ investment requirements and have the necessary risk tolerance, there are obvious attractions in the exempt market, says Haji, noting Pinnacle has income-producing investments that can provide investors with regular cash flow of up to 13 per cent per year.

One product he recommends is OmniArch Capital Group, an investor in U.S. mortgage-backed securities that buys assets for 30 to 40 cents per dollar of face value and pays monthly distributions equal to a 10 per cent annual return. Nothing is guaranteed, but investors are entitled to first cash flow and first title security, and there are no management fees.

Minimum investment is $5,000 and the investment term is five years.

Another is College Drive Capital Corporation, which is invested in a completed Saskatoon condo and commercial real estate project near the University of Saskatoon. It offers a

seven to nine per cent cash flow per year, plus two to five per cent profit participation.

Minimum investment is $10,000 and the investment term is three to five years.

Haji also recommends Phoenix LV fund, which, despite its name, buys condos in Las Vegas. It buys one-, two- and three-bedroom units, primarily from banks, at 35 to 50 per cent of replacement value, and leases them out while waiting for the local real estate market to recover.

Rents provide an annual return to investors of seven per cent. Projected total annualized return on a targeted five-year investment term is 19.76 per cent per year.

Haji adds that most exempt market investments are eligible for inclusion in government registered savings plans. Investments can be made by transferring funds from other under-performing assets in a registered portfolio, such as RRSPs or TFSAs.

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